Islamic Banking in France

The credibility of Islamic finance banking has been boosted by the current financial crisis in Europe and the Koran-inspired system is being embraced by France.

Its supporters claim Muslim principles protect it from the booms and busts of western capitalism. It is already well established in the Middle East and Islamic banks have been thriving in London since 2003. Now Islamic finance is looking to expand in the huge, untapped market of continental Europe.

Strasbourg in France, has a sizeable Muslim population. Its School of Management has just started teaching an 11-month course in Islamic finance.

One of the teachers, Ibrahim Sekissi, says Islamic banking is different from traditional Western banking:

“Islamic banks don’t charge interest. That is forbidden in the Koran. Instead they get involved in their clients’ projects and share their profits or their losses. And Islamic finance won’t touch anything that is bad for man like alcohol, tobacco or arms.”

The theory of Islamic finance was drawn up a century ago but Muslim banking is a recent phenomenon, starting in Dubai and Qatar in the late 1970s. It has grown at a rate of 15% a year and Islamic banks now have billions of euros in assets. So it is no surprise that France wants is share of the business and the jobs.

Stephan, a Christian lawyer and a student at the university, thinks Islamic banking is a good opportunity:

“It’s about time that the Muslim community in France gets the means of financing projects that are in line with their religious beliefs. From a business standpoint, this is good news for our Muslim clients because we’ve got a few clients in the Gulf countries and they very often require that we structure Muslim financing schemes.”

Many believe the subprime crisis that led to the international banking disaster would not have been possible under an Islamic system. Without the bait of interest or the lure of speculative gain, forbidden in Islam, bankers wouldn’t have invested their money so riskily.

But Islamic finance is not invulnerable. Because they’re not allowed financial assets, Islamic financial institutions’ balance sheets contain a lot of real estate whose value has been hard hit in many countries.

Strasbourg Management School Economics professor Laurent Weill is one of the directors of the Islamic finance course. He believes there are other weak spots in Islamic banking:

“Interest is not allowed for Islamic banks so it means that normally, when they give you some money, they cannot expect a certain interest rate and must accept to share with you profits and losses. So, for instance, if they have given some money to a company and the company has no profits, the bank will have nothing. So from this perspective it’s riskier.”